Mixed Premises - Legal Status

Living ‘above the shop’ is quite common in the small business sector and where the premises are rented, the lease will cover both the business and residential parts of the property. However, the statutory basis for repossession is quite different for commercial and residential premises, especially where the latter qualify as ‘assured shorthold tenancies’.

Recently a landlord was seeking to repossess, on the grounds of arrears of rent, premises it had let to a fishmonger. The premises consisted of the shop on the ground floor, which together with a basement made up the commercial premises, and a first-floor flat in which the fishmonger lived.

The District Judge considered the tenancy to be a business tenancy, and therefore not protected by the provisions which apply to shorthold tenants under the Housing Act. A possession order in favour of the landlord was therefore granted. On appeal, the judge ruled that the initial decision had been wrong in regarding the lease as commercial when a residential tenancy had been created and set aside the possession order. The landlord appealed to the Court of Appeal.

The Landlord and Tenant Act 1954 (LTA) will apply when the premises are occupied for business purposes, and a tenancy which is governed by the LTA cannot be an assured tenancy. The question therefore was whether the occupation of any part of the premises was for the purpose of a business carried on by the tenant. If so, the use of the residential part of the premises was incidental to the lease of the business premises and the tenancy could not be an assured shorthold tenancy.

The landlord won the appeal. The initial purpose of the fishmonger’s lease was to secure business premises, so the LTA applied.

Landlords who let mixed accommodation should be prepared for prospective tenants to demand separate leases for the commercial and residential parts of the premises.

A recent decision in which 'right to buy' applications had been approved by the court where buildings used for commercial purposes had originally been  built as a residential property have been overturned by the Supreme Court.

Understanding Options

People who want to buy a property but do not currently have the means to do so, or who simply want to be guaranteed the opportunity to buy it during a specified period or at some future date, will often undertake an option agreement with the owner. Under such an agreement, the prospective purchaser enters into a contract, which normally involves the payment of an up-front charge in exchange for having the legal right to buy the property at or within some future time. Options are widely used where a purchaser wishes to purchase land only if an event (normally the granting of planning permission which the prospective purchaser undertakes to obtain) occurs.

The timing of a purchase under an option agreement can be influenced by a number of factors, so options are usually for a specified period. One common trap in these cases is that the maximum period for which such an option can legally be granted is 21 years. If the option is created for a longer (or indeterminate) period, it is unenforceable. This is so even if the option must be preceded by some event, such as the granting of planning permission. Also, an option for sale of land must be registered at the Land Registry to be enforceable.

In order to purchase the land subject to the option, the purchaser must serve on the vendor a valid notice within the specified time limit. If the option is to be exercised just before the period expires, it is advisable to ensure that proof of delivery (time and/or date stamped as appropriate) is obtained. Also, the option notice must not in any way change the subject of the notice. For example, adding an offer to purchase something attached to the land which was not mentioned in the original option agreement will probably invalidate the option.

It is especially important to make sure all procedural matters are dealt with correctly as regards the notice to exercise the option. In particular, it is sensible for the purchaser of an option to make sure that where there is a ‘trigger event’, which starts the time running during which the option can be exercised, the wording of the agreement is such that the clock starts running when the purchaser becomes aware of the event, not when the event takes place. Failure to do this could result in the loss of ability to exercise an option because the prospective purchaser is unaware of the occurrence of the trigger event.

From the perspective of the grantor of an option, it is important to get the terms right - for example, failing to put in a 'drop dead date' means the option will be valid for 21 years. In a recent case where the option lasted for a period after the end of the planning application process, when this was effectively frozen, the option continued to run, to the landowner's discomfit.

Tenancy Deposit Protection Schemes - Rules

If you are a landlord it is vital that you are aware of the requirement that all deposits taken by landlords and letting agents for Assured Shorthold Tenancies (AST) in England and Wales must be protected by a tenancy deposit protection scheme.

There are two types of tenancy deposit protection scheme available for landlords and letting agents. These are insurance-based schemes and custodial schemes. All schemes provide a free dispute resolution service.

Landlords must be a member of one of the schemes currently in existence. Within 30 days of receiving the deposit, the landlord must provide the tenant with details of how the deposit is being protected including:

• the contact details of the tenancy deposit scheme;
• the landlord’s or agent’s contact details;
• how to apply for the release of the deposit;
• information explaining the purpose of the deposit; and
• what to do if there is a dispute about the deposit.

If a landlord or letting agent does not protect a tenant’s deposit then they will have to pay them a minum of the amount of the deposit and a maximum of three times the deposit sum in compensation.

The requirement to belong to a tenancy deposit scheme operates to the benefit of both landlords and tenants. From the landlord’s perspective, where damage is done to their property, the scheme allows the appropriate amount to be deducted from the tenant’s deposit as compensation. It is important, however, to make sure that an inventory is carried out at the beginning of the tenancy and once the tenancy is concluded, otherwise there is no proof of the damage claimed and the adjudicator is likely to find in favour of the tenant.

From the tenant’s perspective, the scheme protects them against the actions of unscrupulous landlords by making sure that part or all of their deposit is returned to them, depending on the circumstances.

It is important for landlords to understand that a tenancy which commenced before April 2007 and expires after that date will, if allowed simply to continue, create a new AST and any deposit held by the landlord will have to be treated in the same way as a deposit under a new tenancy.

In 2012, following a series of cases which significantly diluted the impact of the previous system, tenancy deposit law was significantly changed by way of the Localism Act 2011, making it more important for landlords to ensure they comply or risk significant penalties.

For further details on the types of scheme and those available, click here.

For guidance on renting generally, click here.

Landlords - Dealing With Pre-Pack Tenants

Businesses in financial difficulties are increasingly seeking ways of ridding themselves of extra costs and, in many cases, premises let in more promising economic times are viewed as a substantial and avoidable liability, especially for businesses which have expanded too quickly.

One of the more common ways for a business to be restructured on a more profitable basis is to arrange to take the profitable parts into a new business by doing a ‘pre-pack’ administration – a procedure whereby the business, or part of it, is transferred to a new entity. Prior to this, the business will be placed into administration, which imposes a moratorium on legal processes, such as the landlord’s right to make the lease forfeit by peaceable re-entry.

The argument for pre-packs is that they maximise the chance of salvaging the business and preserving employment. On the downside, the creditors of the original business are often left nursing losses.

From the landlord’s perspective, a tenant which undertakes a pre-pack may well leave the rented unit behind if it is uneconomic to retain it, thus leaving the landlord facing the prospect of finding a new tenant and a loss of rental income.

If the new business wishes to retain the unit, there may be scope for the landlord to negotiate with the new occupier with regard to arrears of rent as well as adherence to the lease covenants.

The good news for landlords is that in most cases they should be entitled to retain a rent deposit paid by a tenant that goes into administration.

A recent case has also confirmed that it will be difficult in many circumstances for administrators to assign a tenancy 'by operaton of law'  - the landlord will normally have to made it unequivocal by its conduct that the prior tenant's tenancy had ended and a new tenancy begun.

A 2014 decision (which is likely to be appealed) ruled that an administrator or liquidator will become responsible for rent payable on premises from the time they occupy them.

Construction Act Changes

On 1 October 2011, changes to the Housing Grants, Construction and Regeneration Act 1996 (normally called the Construction Act) came into force. These apply to all relevant contracts entered into from that date.

The changes include:

• The removal of the requirement that construction contracts covered by the Act must be in writing;
• The abolition of clauses which require the party putting a matter to adjudication to meet the costs of the adjudication – any such agreement will be ineffective unless it is in writing and has been made after the giving of notice of intention to refer the dispute to adjudication;
• The abolition of ‘pay when certified’ clauses. These effectively pass the debt risk of the contractor ‘down the chain’ to subcontractors, who are not entitled to payment until the contractor is entitled to be paid;
• The requirement that a mechanism for raising payment notices be included in the contract. This must state whether the notices are to be issued by the payer or payee. Each notice must set out the sum due (even if nil) and how it has been calculated; and
• The permitting of partial suspension of work under a contract while disputes are negotiated. Previously, suspension was an ‘all or nothing’ remedy.

The changes are significant and raise the possibility that disputes may increase because verbal contracts or variations of contracts are alleged to have been made. For contractors, the abolition of ‘pay when certified’ clauses may lead to significant financial issues. In addition, standard documentation will need to be revised. The Joint Contracts Tribunal will be issuing new standard documentation to accommodate the changes.

Data Protection Guidance for Landlords

The Information Commissioner's best practice guide for landlords - written to to assist them in complying with the Data Protection Act can be downloaded from the Information Commissioner’s website. The guide includes a checklist which is intended to assist landlords in ensuring that the data they hold on their tenants is only given out to third parties in accordance with the Act. It also has a section on frequently asked questions on data protection matters.

Compensation for Loss of Light

Following a recent case in which a dispute regarding a property owner’s right to light was unexpectedly dealt with by the granting of an injunction against a developer, a more recent case has offered guidance on how much compensation might be payable by a developer who takes the light of another property in the more normal circumstance in which the court rules that compensation is payable.

The principles which will normally apply in assessing the damages payable are that they should be:

• fair – in other words, an amount such as would be likely to be agreed following negotiations between the interested parties;
• appropriate bearing in mind the context of the breach and its nature;
• made with the awareness of the strength of the bargaining position that is created by the right to claim injunctive relief, thus preventing or limiting a development, and the profit that thereby might accrue to the person able to claim the injunctive relief;
• based on a fair percentage of the anticipated size of the profit, but if the profit is not known, the appropriate measure is a suitable multiple based on the loss of amenity;
• not so large that the development would not have gone ahead had it been payable; and
• fitting in the circumstances, after taking into consideration all the other relevant factors.

In the case in point, the court awarded the applicant a sum estimated to be 30 per cent of the developer’s expected profits. If unchallenged, the practical implication of this case is that developers whose developments are likely to take the light of adjacent property owners should be aware that failing to negotiate a favourable position at the outset might lead to a considerable reduction in the development profit should the matter end up being decided in court.

In a more recent case, the court ordered that the builder of an office block must demolish the top two stories (part of which were already tenanted) because they took the light of a nearby listed building. This decision is currently under appeal. Unless specifically granted, the right to light can be very difficult to establish and in a 2012 case it was ruled that where such a right is established by way of an 'easement' (normally where there has been 20 years' uninterrupted access to light), the easement does not transfer to a new owner of the affected property.

If loss of light is an issue for you, the Royal Institute of Chartered Surveyors has issued guidance for its members which will make informative reading.

 Recently, the Law Commission instituted a consultation exercise to see if changes in the law relating to rights to light were necessary. This closed in February 2013. A new draft bill is expected to be issued during 2014.

Options and Pre-emption Rights

Prospective purchasers and vendors of land frequently wish to ‘lock in’ the other party to the deal and the means by which this is done will normally involve the prospective vendor either giving the prospective purchaser an option to purchase the land or granting the right of pre-emption over its acquisition.

The two sorts of arrangement might seem at first glance to be the same, but there are significant differences between them.

Under an option to purchase agreement, the prospective purchaser is given the right to buy the land, possibly subject to the occurrence of a certain event or events, for a limited period of time. If the specified event occurs, the right to purchase is absolute.

A pre-emption agreement, however, gives the prospective purchaser the right to be ‘first in the queue’ should the landowner decide to sell the land within the pre-emption period.

Accordingly, an immediate right over the land is created under an option. An option will also bind a future owner of the land in question. A pre-emption agreement, however, does not create an immediate interest in the land. If the owner of the land decides not to fulfil the conditions which ‘trigger’ the pre-emption agreement, the holder of the pre-emption rights will never see them come into effect. However, pre-emption rights in regard to registered land take effect at the time of their creation and can therefore be binding on subsequent owners.

There are two other important differences between options and pre-emption agreements. To be binding, an option must be made in writing. This is because an option is a conditional contract for the sale of land and, under English law, contracts for the sale of land must be in writing. A pre-emption agreement need not be made in writing, although it is sensible to do so. In the case of a pre-emption agreement, the contract for land only comes into effect when the trigger event occurs and the holder of the pre-emption right then makes the offer for purchase, which the landowner is bound to accept. At that stage the contract must be put in writing.

The use of options and pre-emption agreements also create somewhat different tax positions and any negotiation of an option or pre-emption agreement should be carried out with the benefit of professional advice.

Rent Arrears Protocol

Since October 2006, a revised protocol has applied where a social landlord wishes to gain possession of a property occupied by a tenant under a secure tenancy, where possession is sought on the grounds of arrears of rent. It does not apply to claims in respect of long leases.

The protocol requires that the landlord should contact the tenant as soon as possible after the tenant’s rent falls into arrears, to discuss the arrears, the tenant’s financial position and his or her entitlement to benefits.

The protocol has special protections built into it in order to protect vulnerable tenants – for example where the tenant is a minor, has difficulty in reading or understanding the information from the landlord, may require an assessment for community care or where there are factors which mean that the Equality Act 2010 applies.

In general, proceedings will not be appropriate where the Department for Work and Pensions can arrange to pay the outstanding rent from the tenant’s benefit entitlement, or where the tenant can demonstrate that he or she has provided the local authority with the information necessary to have a reasonable prospect of substantiating a claim for housing benefit and has paid the sums due which are not covered by housing benefit.

Proceedings for possession will normally be postponed if the tenant agrees to pay back the arrears and keeps to the agreed schedule of repayment.

Stamp Duty Land Tax: Beginner's Guide

Stamp Duty Land Tax (SDLT) is a self-assessed tax. The onus is on the taxpayer to make the necessary land transaction return, calculate the tax and pay it across. This is a fundamental change. The old Stamp Duty regime taxed documents, so it was possible to delay paying the duty in many cases simply by not executing the document. Transactions not bearing stamps were not enforceable in the courts and in practice that meant that Stamp Duty was often not paid until the document had to be relied upon. One of the prime reasons for the introduction of SDLT was to prevent the use of these 'resting on contract' arrangements, which are no longer be possible.

Under self-assessment, failure to pay the duty chargeable is be subject to a tough regime of penalties. Self-assessment has been the Revenue's best friend since it was first introduced seven years ago. It turns the taxpayer into a tax inspector and tax calculator and makes them responsible for any error in the calculation or payment. It is primarily the purchaser of the asset concerned who will be responsible for paying the tax. The transaction must be reported and the tax paid within 30 days, with interest and penalties applying for transgressions of the deadline. The Inland Revenue operated a 'soft touch' approach in the early months of the tax, even to the extent of attempting to fix incomplete or incorrect returns, but this has now ceased.

SDLT applies to transactions involving any estate, interest or right over land, which includes transactions involving covenants and variations of leases.

There are exemptions for acquisitions of property in specified disadvantaged areas.

There are some interesting technicalities in SDLT. The definition of a 'chargeable interest' excludes licences but not leases, which makes the definition between the two even more important than it is has been in the past.

Options involving land are also caught by the SDLT rules, which also impact on some transactions between companies and 'related persons'. There are a number of complexities in the transitional arrangements which can also trap the unwary.

Current rates of SDLT for different types of transaction can be seen on the HM Revenue and Customs website.

When Green is Brown (and Vice Versa)

Development in rural areas presents a number of challenges for planning teams and developers alike. Whilst planning policy is clear that previously developed (i.e. 'brown') land is to be used for new housing in preference to undeveloped ('green') land, even virgin greensward can be distinctly 'brown', while some very 'brown' buildings are nevertheless 'green'. For example, agricultural buildings are currently expressly excluded and therefore count as green land for sequential testing purposes.

The starting point was PPG3 Annex C which stated that land which has or had buildings, minerals extraction, or waste disposal on it is 'brown'. In one planning case, the planners tried unsuccessfully to restrict new housing to just 60% of an overall site in Cheshire, excluding the 40% which had no visible trace of previous development, and looked 'green'. The Inspector decided that the site was all within one curtilage. He therefore followed another Annex C principle, that all the land within the curtilage of the qualifying building was 'brown' and could be developed, despite some of it looking green.

In another decision the Inspector allowed residential development on a recently fenced-off vacant and partly derelict 'brown' site, used for years by residents as 'green' amenity land, despite ongoing attempts by the Council to obtain for it town green status. Both decisions show a practical approach by Inspectors on appeal.

'Brown' credentials, however, are not always enough to secure site allocation for residential development through the Local Plan or Local Development Framework, or as a windfall site. Sequential testing will instead favour more sustainably accessible sites and the protection of the countryside for its own sake. The need of appeal inspectors to uphold these policy principles can lead to the frustration of genuinely well-meaning attempts to boost rural housing land supplies and to create affordable housing for local needs.

As the Cheshire case shows, landowners, developers and housing providers grapple daily, on a site by site basis, with the technicalities of the green/brown land policies.

The Government publishes guidance on current planning law (the most recent substantial changes to which took place in 2014) on its planning portal.

 The Government Planning Portal has published guidance called 'Do You Need Planning Permission?' to aid those considering property developments: for expert advice on planning law contact us.

The Duty to Manage Asbestos - HSE Guidance

According to statistics provided by the Health and Safety Executive (HSE), asbestos is the single greatest cause of work-related deaths in the UK. Every year 1,000 people who have been involved in carrying out building maintenance and repair work die as a result of past exposure to asbestos fibres and it is estimated that half a million commercial buildings still contain asbestos.

• you own the building;
• you are responsible through a contract or tenancy agreement; or
• there is no formal contract or agreement but you have control of the building.

The HSE publishes periodic guidance on managing absbestos risk.

Termination of Leases - Tips for Tenants

Break clauses in commercial leases have probably received more attention from tenants in the last year or so than at any time since the early 1990s. For tenants seeking to break their leases, here are some pointers:

• Make sure any notice to break the lease is issued by the right person. This may strike you as obvious, but if, for example, your lease is held by your company, the notice will not be valid unless it is issued specifically on behalf of the company. There can be particular issues when the lease has been assigned;


• Issue the notice at the correct time. This will be set out in the lease, but the language of the lease may not make it obvious. A notice period date which runs ‘from’ a stated day excludes that day, whereas one that commences ‘on’ a stated day includes that day;


• Give the notice in the correct form. Usually, a notice must be given in writing and must be delivered in a particular form. For example, if the lease specifies that it must be delivered by post, a fax will not suffice;


• Give the notice to the correct person and in the form set out in the lease and at the correct time. A notice delivered to the wrong person, in the worng form or late will not be valid;


• Ensure you have not breached your lease terms. A notice to break the lease can usually only be given if the tenant has not breached its terms. Make sure that your rent is paid and all other covenants are complied with, otherwise the notice may not be valid; and


• Make sure you have evidence of the state of the premises so that, if a dispute arises over the sum payable for dilapidations, you have the information necessary to support your position. It is normally advisable to agree the position as far as possible with the landlord. Remember that it may be cheaper to get some of the work that is necessary done yourself, rather than by the landlord, where possible.

Lastly, do make sure you comply strictly with the lease terms about vacating the premises. Recently, a tenant who remained in occupation only to fulfil its repairing covenants was deemed to have failed to give the landlord vacant possession. This was despite the fact that the tenant was only in occupation for a short time and had informed the landlord of its intentions. Receiving no response, it assumed that the landlord was in agreement.

Termination of Leases - Tips for Landlords

When tenants seek to vacate premises, reduce the size of their premises or renegotiate their leases, problems can be created for landlords.

Here are some tips for landlords to help deal with tenants when a break clause in a lease is looming:

• Be ready. Do your research on your tenant and try to anticipate their stance. Get up-to-date accounts and look at their operation. A short visit can often be very illuminating;
• Be ready to remarket your property if negotiations with your tenant break down or they wish to terminate. Put together a pack containing all the necessary planning consents, searches and so on, so a prospective new tenant is in possession of all the information they need to make a decision straight away;
• Make sure you know when and how notices must be issued. The notice you receive from your tenant may not be valid;
• If your tenant wishes to renegotiate their lease, make sure you know your market and can ascertain what their other options might be. Also, consider asking for better security;
• If you think the tenant is likely to default, remember that your right to repossession of the property may be delayed unless you act first;
• Make sure you have evidence of the state of the premises when let initially so you have good grounds on which to base your claim for dilapidations; and
• Make sure you are fully familiar with the terms of the lease, in particular the notice provisions - a notice to terminate may be invalid if it does not comply with the terms set out in the lease.

When is an Environmental Impact Assessment Necessary?

The The Town and Country Planning (Environmental Impact Assessment) (England and Wales) Regulations 1999 apply to any development likely to have significant effects on the environment by virtue of its size, nature or location.

If a Local Authority fails to follow correctly the requirements and procedures set out in the regulations, this can result in planning permission being successfully challenged.

If no EIA is carried out, this can lead to a challenge in the courts.

For example, a decision to grant planning permission to erect residential units, on land contaminated as a result of its former use, was quashed in the High Court on a point of law because the Secretary of State had unlawfully taken proposed remediation measures into account when determining whether an EIA was necessary. It was judged that where an EIA was required, the regulatory scheme required separate information to be provided on the likely environmental effects and measures to reduce or remedy those effects. This decision was then challenged in the Court of Appeal.

The Court of Appeal ruled that while in some cases, where the remediation required would be 'modest in scope', it can be proper to take the proposed measures into account when determining whether an EIA is necessary, this would not be the case where more uncertainties are associated with the remediation measures: in effect, saying that each case must be looked at individually. On the facts of this particular case, the court decided that the Secretary of State could not have properly concluded that the likely environmental effects were such that an EIA was not required.

In the second case, a challenge that it had been unreasonable and unlawful for a Local Authority not to require an EIA was overturned. The High Court held that there was no 'bounding principle' requiring an EIA. Only 'significant' effects would bring a development within the scope of the EIA Regulations. It was for the Local Authority to judge and their decision in this case had been reasonable and lawful.

A recent decision by the court to limit the costs of a protestor who objects to a development near Hampton Court shows that the courts take the environmental aspects of planning decisions seriously and are willing to try to ensure that objectors on environmental grounds are not deterred by the potential costs of taking their challenge to the court.

Mopre recently a planning appeal was decided (in favour of a development opposed by the local planners) after the court stressed the importance of developments which had an impact on local employment levels.